In the present economic situation of falling interest rates, it is an open opportunity for home buyers to minimise their cost of home purchase. The perfect time to purchase one’s dream property at an affordable loan rate. Even the existing home loan borrowers will be able to save large amount of money through refinancing of their loan.

Refinancing can be defined as the process of paying off an existing loan with the proceeds from a new loan, usually of the same size, and using the same property as collateral. It simply means to take a new loan for repayment of your existing loan. The terms and conditions of the new loan should be such which offers an advantageous position or substantial savings to the Borrower as compared to the old loan. For refinancing to be viable, the proposed savings should be larger than the component of cost involved in it. Normally, the refinancing option can be exercised only upon payment of a penalty or fee.

Why refinance?

Refinancing is done mostly for two reasons- savings or modification of deadline for loan payment or both.

When a person swaps the existing loan with another loan at a lower interest rate, then the difference in interest rates automatically make way for savings.

On refinancing, the borrower gets an extended deadline for repayment of loan by undertaking a new loan. Like a person who needs to pay off a loan in near future but does not have the funds for repayment, can refinance his loan. This prevents the Borrower from becoming bankrupt.

Similarly, the extension of timeline can be used for reducing the EMI payments payable to banks.

For some people, it maybe the long duration of loan is a cause of concern. By entering into a loan agreement with new terms and conditions, the timeline for loan repayment can be drastically shortened. This leads to savings in terms of reduction in number of interest payments.

Another reason for refinancing can be to switch from a variable rate to a fixed rate loan or vice versa.

In case of multiple loans, one can use refinancing to consolidate those loans into one single loan especially for an offer of lower interest rate. It also makes tracking of the loan and interest payments easier.

Benefits of refinancing.

1. Savings: A common reason for refinancing is to save money on interest costs.

2. Improved cash flow: Refinancing can lead to lower EMI payments due to the extension of timeline for loan repayment. This enables easy cash flow management and addressing of new expenses.

3. Reduction in loan amount– The loan tenure is inversely proportional to the amount of EMI payments. This means the higher the tenure, the lesser the amount of your EMI payments and vice versa.

4. Early loan exit– If there is an increase in the cash inflow, one can be free from loan by making larger EMI payments for a shorter loan term.

5. Modification of loan terms like fixed rate to fluctuating rate of interest or vice versa, to suit the present financial standing of the individual or to meet the present and future expenditures.

6. Deployment of money into other investments– If you are planning to make another investment, refinancing is a smart move for diversion of funds into other profitable ventures provided you are good at financial planning and management.

7. Improved credit rating– As the existing loan is paid off before due date, it improves or maintains the credit rating of the individual which is important for securing future credit requirements.

Checklist before refinancing

Refinancing is beneficial. However, there are some factors which need to be taken into account before jumping into the decision of refinancing.

Transaction costs: Refinancing can be expensive if the closing cost involved in a loan is too high.

Additional interest costs: Though one enjoys lower EMI payments on an extended loan period, it may actually lead to higher amount of interest payments in totality.

Lost benefits: Some loans have important features that may go away on refinancing. For example, a fixed-rate loan might be ideal if interest rates are high even if you temporarily get a lower rate with a variable rate loan.

It is important to remember that refinancing should be done only when the aforesaid factors are outweighed by the positive outcomes of new arrangement. Also be mindful of the fact that though refinance conveys alteration in financial management, there are certain ground realities which remain unchanged.

1. Existence of the same amount of debt or more in case closing costs are involved.

2. Risk of losing the same collateral security – property in case of home loan, on non-repayment.

3. Be aware of the new payment structure and its components, to evaluate its long term impact on your financials.

4. Refinancing your home loan comes at a charge, which differs from bank to bank. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable

Refinancing is a calculated move and therefore, one needs to be aware of the discussed factors, in order to reap the potential benefits out of it. In the current scenario of skydiving interest rate, it is the perfect time for refinancing of home loan. From a micro perspective, an individual has to do the required math and proper balancing between payments and savings, to qualify for the advantages of refinancing of home loan.

In a benami transaction, property or land is bought in someone else’s name or under a fictitious identity (also known as Benamidar), with the primary objective of hiding black money and staying under the radar of tax authorities. In 1988, the Benami Transactions (Prohibition) Act was enacted which made it an offence to undertake Benami transactions.

Despite the legislative effort, there were some corners of Benami transactions left unattended.

To fill the void in present laws, an amendment was proposed and passed by the Parliament in 2016 namely, The Benami Transactions (Prohibition) Amendment Act, 2016. The purpose of this amendment is to bring effectiveness and efficiency in the implementation of laws prohibiting Benami transactions.

The major modifications and additions brought in by the amendment are being hereby categorically mentioned, to understand and estimate its influence on realty sector.

1. Benami transaction re-defined

In the former law, benami transaction was simply defined as any transaction in which property is transferred to one person for a consideration paid or provided by another person.

Whereas in the new legislation, benami transaction is defined as a transaction in which:

a) the property is held by one person and paid for by another; or

b) it is held in a fictitious name; or

c) the owner of such property is unaware of or denies having knowledge of such ownership; or

d) the person financing such transaction is not traceable.

This new definition has the following exceptions-

i. karta for his or his family member’s benefit; or

ii. a person standing in fiduciary capacity for the benefit of another, including a trustee, an executor, a partner, a company director or a depository participant or agent; or

iii. a person for the benefit of his spouse or child; or

iv. a brother or sister or lineal ascendant or descendent.

Additionally, the consideration paid for such transactions should have come from known and traceable resources to claim these exceptions. Otherwise, it will be considered as a Benami transaction.

2. Property re-defined

Previously, property meant property of any kind, whether movable or immovable, tangible or intangible, including any right or interest in such property.

After the amendment, property means not only movable or immovable, tangible or intangible property but also corporeal or incorporeal including any right or interest or legal documents or instruments evidencing title to or interest in such property and where the property is capable of conversion into some other form, then the property in the converted form and shall also include the proceeds from the property.

Thus, a wide range of transaction will be covered under the ambit of Benami laws.

3. Higher punishment

The new law seeks to change the earlier penalty of one to three years, to rigorous imprisonment of one year up to seven years, and a fine which may extend to 25% of the fair market value of the benami property.

4. Establishment of adjudicating authorities

The amended law provides for the establishment of four authorities- (i) Initiating Officer, (ii) Approving Authority, (iii) Administrator and (iv) Adjudicating Authority, to conduct inquiries or investigations regarding Benami transactions:

5. Power to make rules by the government

Through this amendment, government has been granted the right to formulate rules for the proper execution of provisions under the Act.

6. No right can be enforced by the real owner against Benamidar.

The real owner or any person on his behalf is prevented from filing any suit, claim or action against the namesake owner. In other words, the real owner who has funded the capital will not have any right to retrieve his property if the transaction is benami.

7.Benami property cannot be transferred

No transfer can take place in respect of the Benami property once it comes under the investigation radar of the authorities established under this Act. Any transfer made during the investigation process of the concerned property shall be held invalid in eyes of law.

8. Re-transfer of Benami Property

A benamidar cannot re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. If any benami property is re-transferred the transaction of such a benami property shall be deemed to be null and void.

However, this does not apply to a re-transfer of benami property initiated pursuant to a declaration made under the Income Declaration Scheme, 2016. As per Section 190 of the Finance Act, 2016 the Benami Act shall not apply in respect of the declaration of the undisclosed asset if the benamidar transfers such benami property to the declarant who is the real beneficial owner within the period notified by the Central Government. i.e. on or before 30th September, 2017.

Predicted positive impacts of the new Benami Act, on the real estate market :

Transparency

The issue of transparency in property deals is the biggest concern for all. The coverage of numerous transactions and establishment of adjudicatory bodies, in addition to widening of the investigative powers for handling such illegal activities, will induce an environment for secure and transparent deals in realty sector.

More investment

With the resolution of transparency issues and clear adjudicatory procedures for Benami properties, more investors shall be willing to invest their funds in real estate.

Restriction on Black money

This amendment ensures that the fund flow for a property is from legitimate sources only and not garnered through illegal means, commonly referred to as the black money. No exemptions are provided under this law if the source of funds cannot be accounted or traced back to legitimate sources.The exclusion of black money from realty market will help in bringing the realty industry at par with other formal industries.

Prevention of tax evasion

In order to save taxes, it is a popular practice to divert large proportion of one’s wealth for purchase of properties on other person’s name. However, the new law aims to filter these kind of transactions from genuine property deals and punish the wrongdoers with imprisonment and heavy penalty.

Increased Buyer Confidence

The Buyer segment will be more confident and eager to enter into property deals as the title risks will reduce to almost negligible due to the transparency brought in by the new legal regime.

Strict action

The new law provides for higher amount of fine and increased years of imprisonment in case of deviance from the provisions contained in the new Act.

If the available evidence confirms it, the Adjudicating Authority is authorized to even order confiscation of the property by the government.

Apart from the beneficial owner and the benamidar, other persons involved in the transaction are also going to be punished. A fine of up to 25% of the market value of the property can be imposed on all the parties.

In case false information or documents is provided to the authorities by any person, he maybe imprisoned for up to five years and face a fine of up to 10 per cent of the market value of the property involved.

The realty sector is entering a new age which stands for transparency and bonafide agreements. The government is taking steps like introduction of new laws to formalize the realty sector as it has the potential of contributing significantly to the economy of the nation. Though the proportion of impact can be judged only after passage of sometime but it cannot be denied that the participants of real estate market have accepted the new enactment with open arms and a positive outlook.